I am a retired tough love angel who is tough when the situation calls for it but otherwise expects smart people to find their way with soft love.

Category Archives: Leanstartup

A few weeks ago I keynoted the Founder Institute’s opening session in Finland. A successful serial entrepreneur Sami Inkinen, a co-founder of Trulia, talked about the culture. Sami asked a great question from the audience: “Which one is more important: building a great culture or shipping your first product?” The majority chose shipping the product over the culture.

This, however counter intuitive it may sound, is the wrong answer. As I had a related unpublished story waiting in my drawer, I chose to publish it.

The most important thing in any startup is its culture and the people who live and breathe that unique culture. Building a successful startup is always about creating a high performance team with attitude, commitment and passion. A high performance individual you see often while a high performance team that works efficiently together and is committed – that’s a rare thing. This part of the puzzle is very tough to get right the first time (or second time …) and usually requires iteration (i.e. firing people) which can be very painful and hard.

I wish I were more clairvoyant on this all important aspect but so far my experience is that you only see if a team works or not when they are in a knee-deep shit – as it is easier to be excited and high performing in the very beginning of a journey or when the times are good.

Naturally being exceptionally good at hiring goes a long way.

The product comes second. Entrepreneurs need to define their minimum viable product (“MVP”) and choose a launch angle out of many possibilities.

Defining an MVP is hard, as for any given higher level product concept, you can easily choose dozens of different MVPs to test the product concept, and thus false positives or false negatives are a real issue – and fully dependent on your ability to see and guess the most relevant MVP for a given product concept in a given test market.

When the core team is in place and an MVP is out from the oven and exposed to the market, it is the right time to raise funding. This is the natural order, not the other way around where a skeleton team with key roles missing tries to raise funding with a set of PowerPoint slides.

Too many startups are wasting their own and angels and VCs valuable time in chasing funding when they are not yet fundable.

To summarize:

First, build a great culture and hire the core team that is not only highly capable but positively contributes to your startup’s culture. Companies stay alive, fly or die because of their culture.

Second, build a minimum viable product to test your assumptions. Do understand that from the very same product concept a number of different MVPs can be built. Some are better guesses than others.

Third, raise seed funding at the stage when you have core team in place and MVP ready to rock.

Selling an unknown product built by an unknown startup is not easy. Some Nokia-based startups do have marvelous go-to-market plans that could work but only if the startup had both the credibility and resources of a larger, more established company.

As they don’t have either, the plans will most likely fail miserably. Every startup desperately needs an entry point to its market, an entry point to close the first customer, then second, and so on. Problems with go-to-market strategies stem from not understanding customers and their needs well enough, and perhaps with Nokia background it is just a little bit easier to have an attitude problem and think that distribution and scaling up are not a big issues – as they never were while working at Nokia. Yeah, right.

I hope you will enjoy this series, the thoughts it provokes, and the discussion it triggers. Please do participate to the discussion by sharing your own angle and experiences on this topic, or commenting on something, anything on this post. The preferred place for discussion is the Facebook page at https://www.facebook.com/ToughLoveAngel.

“Don’t be an *sshole.”

This is part of my Nokia Startups Mistakes series. For a backgrounder, please read the introduction. This is a somewhat difficult mistake for me to write about as I haven’t personally witnessed it in my interactions with Nokia-based startups. Some angels and VCs, however, have mentioned enough times that they think quite many ex Nokians suffer from being arrogant. This behavioral trait most likely is rooted in how things were done at Nokia Corporation.

Let me first define what is understood with arrogance here.

In authoritarian leadership style a Nokia executive while still at Nokia directed his subordinates and especially external vendors to make various things happen without providing any intrinsic or monetary motivation beyond punishment in case of non-compliance. This style may work in a large corporation where an executive holds undisputed authority over his subordinates, and vendors are at the mercy of the corporation and its dictators.

When a Nokia executive who has lost his beloved badge, and the authority and recognition that came with it, continues to command external people and service providers without offering any other motivation than his lost authority – that’s what we call as arrogance.

Why arrogance can be bad?

Most startups are broke. To get things done, entrepreneurs need to leverage their own network and the networks of their co-founders, investors and advisors. Sometimes you need to get service from previously unknown service providers at below market price or paying with equity only. People don’t move their asses and do favors just because you say so but instead they want to get something in return – like feel good in helping you out, or get a pole position to offer their services later on when you can pay with real money. A startup co-founder, and this applies especially to the CEO, has to know how to ask help, and how to get people do things for him while most of the time the only instant payback is his gratitude. But make no mistake, earning someone’s gratitude and trust, and thus being able to someday ask help yourself, that’s incredibly powerful.

What then motivates people help each other?

So far we have firmly established the following two things:

To get things done fast on a timely manner, and to operate at low costs in the early days, a startup needs to tap into the network of its co-founders and advisors, and once and awhile source important services while not being able to pay any significant money.

Being arrogant, i.e. trying to exercise authority on people you don’t have any authority, is not going to help you win people on your side.

So, how should you then deal with people?

What are the six weapons of influence?

Robert B. Cialdini is my hero. He is the author of one of the greatest business books ever written: Influence: The Psychology of Persuasion. This book is a must read for anyone who ever needs to deal with other people, yeah – it’s like a bible is for believers. The book is fun to read and reviews many of the most important theories on and experiments in social psychology.

I have just summarized here Cialdini’s thoughts for your convenience, but to truly grasp them you should read the book.

Reciprocation. We humans are unique amongst all animals as we incur debt from services and gifts from other people, and then we feel a growing urge to pay back. Likewise if we say no to someone that tried to sell us something, we become more prone to buy something from the same guy later on.

Commitment and consistency. Once people have made a choice or taken a stand, they are under both internal and external pressure to behave consistently with that commitment. When you get someone to commit verbally to an action, the chances go up sharply that they’ll actually honor that commitment.

Social proof. This is a very powerful shortcut that many smart and dumb people take in the times of information overload. Most investors are sheep that follow one other, and thus getting a lead investor that serves as a credible social proof will get you the rest.

Liking. People love to say ‘yes’ to requests from people they know and like. And people tend to like others who appear to have similar opinions, personality traits, background, or lifestyle. More people will say ‘yes’ to you if they like you, and the more similar to them you appear to be, the more likely they are to like you.

Authority. Most kids are raised with a respect for authority. Authority plays internally little role – yet it has a role – in startups which are meritocracies, and to get external people do things for you just because you say so – yeah, that’s arrogance and probably doesn’t work.

Scarcity. Opportunities seem more valuable when they are less available. This, again, is a very important principle e.g. when raising funding or recruiting new people.

To summarize:

Startups should be meritocracies and thus ruling by authority doesn’t work inside or outside the company. To get outside people do favors for you, besides paying money for their services, you need to offer them incentives grounded to social psychology. Asking for help, for instance, is a very powerful way to empower people. People, in general, like to help other people when nicely asked, as long as the effort required is decent, and you pay back with your gratitude.

And, read the Cialdini’s book – you will have lots of fun, and the probability that you will be able to raise funding from investors or buy services below market rate increases.

I hope you will enjoy this series, the thoughts it provokes, and the discussion it triggers. Please do participate to the discussion by sharing your own angle and experiences on this topic, or commenting on something, anything on this post. The preferred place for discussion is the Facebook page at https://www.facebook.com/ToughLoveAngel.

The single point I want to highlight in this post is the fact that a channel partner is not your customer. Therefore you should not pay too much attention to their requirements. This is a common mistake for all entrepreneurs but perhaps even more common to Nokia-based startups as both Nokia and its network part are known for designing their products to mobile operator requirements. While this approach back in time was a competitive advantage for Nokia, the same approach won’t work for a startup.

Your channel is not your customer

I have been thunderstruck that some Nokia-based startups are not laser-focused on end users and their needs. They rather have a technology-driven and channel-centric mindset where building a product starts with internal product specification shaped lightly by feedback from prospective channel partners. Unlike a fragile startup, mobile operators with fear of Google and Apple, have all the time in the world to specify imaginary products that would in their dreams help them to stay relevant and compete against Google/Apple juggernauts. Most of these imaginary products can’t be pushed to end users unless they really want them.

Focusing on an imaginary product without true end user pull means typically a bitter death for a startup. Some products, e.g. many telecom products, have relatively long product development cycle, which further increases the overall risk. And this because you burn all the cash and when the real end users reject your product, then the channel rejects your product too, and at the end of the day there simply is no more money left for a pivot.

If you build a product to your channel, you don’t know if there is any real end user driven demand, and therefore a sustainable market for your product or not. You are practically betting your startup’s future on guesswork by a middle man. How stupid is that?

It makes a lot of sense to pay most attention to end users as they will ultimately decide which products fly or die. This is not to say that channels wouldn’t be important – yes, they are – but do design your product with real end users’ needs in mind.

I hope you will enjoy this series, the thoughts it provokes, and the discussion it triggers. Please do participate to the discussion by sharing your own angle and experiences on this topic, or commenting on something, anything on this post. The preferred place for discussion is the Facebook page at https://www.facebook.com/ToughLoveAngel.

For engineers with Nokia background, it seems customary to build gigantic minimum viable products (“MVP”). Nokia is not known for its agile software development practices. On the contrary, according to many Nokia alumni, it always took a hundred engineers to build anything at Nokia – no matter how small.

It takes a lot of product vision to define a meaningful MVP, and not being close to the customer makes it even more difficult.

How to keep the product minimum?

Avoid excess funding,

Slideware, paper prototypes, UI sketches are an excellent way to test market.

Start with a small nimble software team comprising one to five people. If you need a bigger team, it is unlikely that you are building the minimum.

Use agile and iterative software development practices.

Get out of the room and establish a feedback loop with a few lead customers early on.

It is much easier to work with the problem definition and play with various paper prototypes etc. longer when there is only you and perhaps your co-founder. The whole situation changes mentally when you have even a small software team in place, and guess what they start to do?

Yeah, right – they start to code while it in many cases would be much wiser to keep working with the problem definition and cheap paper prototypes.

I hope you will enjoy this series, the thoughts it provokes, and the discussion it triggers. Please do participate to the discussionby sharing your own angle and experiences on this topic.

“It is hard to develop a world-class product in a lab far away from lead customers and key ecosystem players.”

Your success begins from understanding who your customers are, and what are their true needs. To be clear on this, your success does not begin from your lab.

In many cases, your lead customers, the ecosystem and its dominant players are not in your home country but on the other side of the ocean. The long distance makes it a challenge to understand the evolving customer requirements, intricate details of the ecosystem and its power structure, and what your competitors are up to.

It is very important to be visionary but it is downright stupid not to try your best to understand what the customer needs.

Why all locations are not equal?

In Finland, with the near end of existence of Nokia and its ecosystem, we are not particularly an epicenter of anything beyond the mobile gaming. The winners are typically born close to dominant ecosystems where all the action and latest knowledge is. Or close to the first few leading customers who are first to take into use a novel or just different approach to their problems due to their innovativeness, or unique external environment circumstances at the time.

Interesting geographies from ecosystem, market size and new tech adoptation point of view include naturally USA, China, and emerging markets in South East Asia and Africa.

How to do customer development from distance?

In some Nokia cases, I have been delighted to see this local customer development element in play from day one. In other cases, the customer development part is handled from Finland via Skype and email, by using a network of local agents, and once and awhile hopping on a plane to have face-to-face meetings with far away customers and business partners.

Outsourced business development or too lean business development from distance is not the way to go if and when your early success depends on closing the first customer out of a handful few whose purchase window is open now. If you want to close deals and accelerate to the product-market fit (or pivot), you better be close to your customers and get used to spending a lot of quality time in planes and hotels away from your family. Yes – time away from your family, until you have some traction and you can start doing things differently.

The Nokia alumni is a vast network that spans the whole world. People who you either know in person or at the minimum share the Nokia experience with. This is a great asset – use it!

To be close to your customers at minimal cost, I suggest the following approach:

Recruit a local business developer, perhaps a Nokia alumni, as part of your founding team or early employee with a strong vested interest to help you understand your customers.

Use external agents only to open doors, never rely on them do drive your sales and customer development.

Don’t use any time drafting lengthy distribution agreements until you have a product/market fit established. And even then rather work with your agents and business partners, close the first joint deal, and formalize the relationship only then.

As the final remark: be lean but, more importantly, understand what the customer needs.

I hope you will enjoy this series, the thoughts it provokes, and the discussion it triggers. Please do participate to the discussion by sharing your own angle and experiences on this topic

This is part of my Nokia Startups Mistakes series. For a backgrounder, please read the introduction. I suggest you also read my previous post about the culture as the poor culture is the root cause for high burn rate, but it is the high burn rate that eats your cash and kills you, not the culture itself.

High burn rate in a startup equals increased requirements for external funding and shortened runway to reach either profitability or critical milestones for the next funding round. I have seen catastrophic burn rates in many Nokia-based startups.

This problem starts with people who are used to pay a lot even for mediocre services as they have had the money in the budget. And people who also don’t have much clue on how to be frugal and run a lean startup. Other contributing factors are “easy” money from Nokia combined with easy public funding leverage from Tekes, and the share ignorance how detrimental high salaries and premature scaling can be for a startup and its culture.

Just to make sure everyone understands it. The key factors that cause high burn rate:

Premature scaling. A seed stage startup is three to five persons, NOT 10 or 20. Hold your horses and don’t scale up until you have established the product/market fit.

High salaries. In a pre-revenue startup, salaries should be low, preferably in the range between 2000-4000€/month for co-founders, with no relation whatsoever to previous salaries paid at Nokia.

My advice this time is dead simple.

Be lean, my friend!

I hope you will enjoy this series, the thoughts it provokes, and the discussion it triggers. Please do participate to the discussion by sharing your own angle and experiences on this topic, or commenting on something, anything on this post. The preferred place for discussion is the Facebook page at https://www.facebook.com/ToughLoveAngel.